trading with bollinger bands - toni turner.pdf

7/26/2019 trading with bollinger bands - toni turner.pdf

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Trading withTrading withBollinger BandsBollinger Bands

with

ith

oni urneroni urner

www.www.toniturnertoniturner.com.com


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A Brief Introduction . . .A Brief Introduction . . .

Toni TurnerToni Turner

PresidentPresidentTrendStar Trading Group, Inc.TrendStar Trading Group, Inc.

A Beginners Guide to Day Trading OnlineA Beginners Guide to Day Trading OnlineA Beginners Guide to Short SellingA Beginners Guide to Short Selling (video)(video)

A Beginners Guide to ShortA Beginners Guide to Short--Term TradingTerm TradingWebsite: www.Website: www.toniturnertoniturner.com.com


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How About You?How About You?

Where are you in your trading career?Where are you in your trading career?

What time frames do you trade?What time frames do you trade?

Do youDo you use fundamental analysis as ause fundamental analysis as a

decision support tool?decision support tool?Do you use technical analysis as aDo you use technical analysis as a

primary decision support tool?primary decision support tool?Do you currently use Bollinger Bands?Do you currently use Bollinger Bands?

What additional indicators do you use?What additional indicators do you use?


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Todays TopicTodays TopicBollinger BandsBollinger Bands

Where they are usedWhere they are used

Time framesTime framesBasic Conceptshow they workBasic Conceptshow they work

Combining them with other indicatorsCombining them with other indicatorsWhat they areWhat they are

Identify price patternsIdentify price patterns

Confirm trendsConfirm trends

Locate highLocate high--probability setups, entries andprobability setups, entries and

exitsexits


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Bollinger BandsBollinger Bands

What they are . . .What they are . . .

Created by John Bollinger in early 1980sCreated by John Bollinger in early 1980s

Consist of upper and lower envelopes, orConsist of upper and lower envelopes, orbands, plotted in and around the pricebands, plotted in and around the price

pattern of a stock or indexpattern of a stock or index

Expand and contract according to volatilityExpand and contract according to volatility


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Bollinger Bands AskBollinger Bands Ask

Question: On a relative basis, areQuestion: On a relative basis, areprices high, or low?prices high, or low?

Answer:Answer:

Prices are high at upper bandPrices are high at upper bandPrices are low at lower bandPrices are low at lower band


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OBV

Upper band

Lower band

20 MA

RealTick graphics used with permission of Townsend Analytics, Ltd. 1986-2002. All rights reserved.


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Bollinger Bands . . .Bollinger Bands . . .

Base: middle band is usually 20Base: middle band is usually 20--period movingperiod moving

average.average.

Upper band: spread above that MA by volatilityUpper band: spread above that MA by volatility

measure known as standard deviation. Defaultmeasure known as standard deviation. Default

set at 2 standard deviations.set at 2 standard deviations.

Lower band: middle band less sameLower band: middle band less same volatilyvolatily

measure.measure.


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the formulathe formula


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Lets Translate That!Lets Translate That!

OBV

Upper band

Lower band

Defaults:

20-period MA

Bandwidth = 2 standard deviations

RSI



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Bollinger Band Applications . . .Bollinger Band Applications . . .

Decision Support Tool for: stocks,Decision Support Tool for: stocks,

indices, options, commodities, financialindices, options, commodities, financialfutures, currencies, and mutual fundsfutures, currencies, and mutual funds

Effective Time Frames: years, quarters,Effective Time Frames: years, quarters,

months, weeks, days, hours, minutes,months, weeks, days, hours, minutes,

ticks!ticks!


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Three Primary UsesThree Primary Uses

Pattern recognitionPattern recognition

Recognize double tops, headRecognize double tops, head--andand--shoulders,shoulders,double bottomsdouble bottoms

Reversal signalsReversal signals

Identify early warning signs of reversalsIdentify early warning signs of reversals

Trend analysisTrend analysis

Detect trend continuation and conclusionDetect trend continuation and conclusion


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Bollinger Bands (BB)Bollinger Bands (BB)

Basic Concepts . . .Basic Concepts . . .Used to compare price and indicatorUsed to compare price and indicator

action to arrive at buy and sell decisionsaction to arrive at buy and sell decisions

Confirming indicators should not beConfirming indicators should not bedirectly related to each otherdirectly related to each other

Price can, and does, walk up the upper BBPrice can, and does, walk up the upper BB

and down the lower BBand down the lower BB


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Basic ConceptsBasic Concepts

RSI

OBV



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Bollinger Bands (BB)Bollinger Bands (BB)

Basic Concepts . . . continuedBasic Concepts . . . continuedTags of bandsTags of bands are not necessarilyare not necessarilybuy/sellbuy/sell

signalssignals

Closes outsideCloses outside BBsBBs can becan be continuationcontinuationsignalssignals if confirmed by other indicatorsif confirmed by other indicators

Contraction (The Squeeze) is followed byContraction (The Squeeze) is followed by

Expansion, is followed by Contraction.Expansion, is followed by Contraction.


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Basic ConceptsBasic Concepts



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Basic Concepts . . .Basic Concepts . . .

BBsBBs are based on a simple movingare based on a simple moving

average. Default is 20average. Default is 20--period MA with 2period MA with 2standard deviations.standard deviations.

Default contains 95% of price actionDefault contains 95% of price actionWorks well on most time framesWorks well on most time frames

Longer term: 50Longer term: 50

--period MA, 2.1 std. dev.period MA, 2.1 std. dev.

Shorter term: 10Shorter term: 10--period MA, 1.9 std. dev.period MA, 1.9 std. dev.


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Time Frame: Weekly ChartTime Frame: Weekly Chart



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Time Frame: 15Time Frame: 15--Minute ChartMinute Chart

Gulp!

Check outvolume



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Time Frame: 5Time Frame: 5--Minute ChartMinute Chart

Gulp!

Check outvolume

Head-and-Shoulders



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Strategy:Strategy: Double BottomDouble Bottom--BottomBottom

FishingFishingLocate stock basing by forming a doubleLocate stock basing by forming a double

bottom (time framebottom (time frameyour choice).your choice).

First bottom may penetrate lower BB.First bottom may penetrate lower BB.

Second bottomSecond bottom may be lowermay be lowerthan priorthan priorbottom (!), butbottom (!), but may not penetratemay not penetrate band.band.


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Strategy:Strategy: Double BottomDouble Bottom--BottomBottom

FishingFishingOther indicators must show bullishOther indicators must show bullish

divergence.divergence.

Confirming break to upside must be onConfirming break to upside must be onhigh volume.high volume.

Place protective stop just below recentPlace protective stop just below recent

bottom.bottom.


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Double BottomDouble Bottom--Bottom FishingBottom Fishing

10 point day!



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Double BottomDouble Bottom--Bottom FishingBottom Fishing


Sh ti St t D bl TSh ti St t D bl T


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Shorting Strategy: Double TopShorting Strategy: Double Top

HeadHead--andand--ShouldersShouldersLocate stock forming Double (or Triple)Locate stock forming Double (or Triple)

Top, or HeadTop, or Head--andand--ShouldersShoulders

First top, or left shoulder + head, willFirst top, or left shoulder + head, willpenetrate upper BBpenetrate upper BB

Second top, or right shoulder,Second top, or right shoulder, may notmay not

penetratepenetrate upper bandupper band

Sh ti St t D bl TSh ti St t D bl T


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Shorting Strategy: Double TopShorting Strategy: Double Top

HeadHead--andand--ShouldersShouldersAdditional indicators show bearish divergenceAdditional indicators show bearish divergence

Double TopDouble Top Second pivot: Sell short as stock falls belowSecond pivot: Sell short as stock falls below low oflow of

high dayhigh day

Final leg: Sell fall of fall below middle pivot of M,Final leg: Sell fall of fall below middle pivot of M,or support areaor support area

Low risk: Wait for throwback rally to failLow risk: Wait for throwback rally to fail

HeadHead--andand--ShouldersShoulders

Sell short as stock breaks necklineSell short as stock breaks neckline

Low risk: Wait for throwback rally to failLow risk: Wait for throwback rally to fail


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Sell Short Double TopSell Short Double Top

Throwback rally



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Sell Short HeadSell Short Head--andand--ShouldersShoulders

Tag

No tag



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Strategy:Strategy: Identify Market TopsIdentify Market Tops



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Strategy:Strategy: Play The SqueezePlay The Squeeze

Locate a stock in a tight SqueezeLocate a stock in a tight Squeeze

Identify prevailing trendIdentify prevailing trend

Scan additional indicators to prepare forScan additional indicators to prepare for

possible entrypossible entry

Once in, set trailing stopOnce in, set trailing stop

Pl Th S Pl Th S


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Play The SqueezePlay The Squeeze

Head Fake!

Yesssssssss!



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In Conclusion . . .In Conclusion . . .

Bollinger Bands help you, the traderBollinger Bands help you, the trader

and/or investor, to identify price patterns,and/or investor, to identify price patterns,trend direction, and reversals.trend direction, and reversals.

This knowledge aids you in placing wellThis knowledge aids you in placing well--thought out, disciplined, lowthought out, disciplined, low--risk trades.risk trades.

Rememberyour first priority isRememberyour first priority is alwaysalways totoconserve your capital!conserve your capital!

trading with bollinger bands - toni turner.pdf

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